Jeffrey Smith’s Starboard Value LP had a solid first quarter, with its 16 long positions in stocks with a market cap above $1.0 billion delivering weighted average returns of 6.4% during this period. While most of its investments paid off, some of the hedge fund’s picks had a strong negative impact on overall returns. In this article we will take a closer look at Yahoo! Inc. (NASDAQ:YHOO), Staples, Inc. (NASDAQ:SPLS), Alibaba Group Holding Ltd (NYSE:BABA), and AOL, Inc. (NYSE:AOL), which were among Starboard Value’s worst picks in Q1.
Starboard Value is an activist hedge fund that was founded in 2002 by Jeffrey Smith. The firm employs a fundamental oriented approach and focuses primarily on small-cap stocks. Furthermore, the New York-based investment firm favors undervalued companies and seeks to actively engage with management in order to identify opportunities to unlock further shareholder value.
Yahoo! Inc. (NASDAQ:YHOO) was one of Starboard Value’s top picks at the start of the first quarter, with a holding of 7.72 million shares valued at around $390 million. The hedge fund entered a new position in the company during the third quarter of 2014. Mr. Smith’s firm hoped management would take steps to increase shareholder value by spinning off Yahoo! Inc. (NASDAQ:YHOO)’s stake in Yahoo! Japan and/or considering a merger with AOL, Inc. (NYSE:AOL). However, so far this year, Starboard Value was unable to profit from its stake in this stock, which lost 12.02% during the first quarter.
Staples, Inc. (NASDAQ:SPLS) also performed poorly last quarter, as shares dropped 9.45%. This was bad news for Starboard Value, as it had increased its stake in the company to 31.46 million shares in February. Hence, the hedge fund is currently one of Staples, Inc. (NASDAQ:SPLS)’s largest shareholders among institutional investors. Mr. Smith’s firm remains confident the stock will deliver solid returns in the future, especially once post-merger synergies from its acquisition of Office Depot Inc (NASDAQ:ODP) kick in. Richard S. Pzena’s Pzena Investment Management is also betting on the company, disclosing a position of 25.45 million shares in its latest 13F filing.